Late in the trading day, the Israeli military announced a ground offensive in the Gaza Strip after 10 days of fighting between Israel and Hamas militants. Minutes before the closing bell, word was spread via Twitter that the White House was on lockdown, a security precaution over an unattended bag that turned out to be a false alarm.

Geopolitical risk often spooks markets, especially in the short term, as investors wait to gather more information and find out exactly what happened, he says.

"If true (and the plane was shot down), combined with the Israeli situation, there is potential for powderkegs," says Kaltbaum. "And with the market in the trees (and trading near new highs), there is potential for profit taking. But news will be fluid. If all hell doesn't break loose, the (decline) should be short-lived."

The big uncertainty, Kaltbaum adds, is "what could happen next and who could get involved."

The Dow Jones industrial average fell 161.39 points, or 0.9%, to 16,976.81, after closing at a record 17,138.20 Wednesday. The Standard & Poor's 500 index dropped 23.45, or 1.2% to 1958.12 and the Nasdaq composite index fell 62.52, or 1.4% to 4363.45.

Gold and bond prices rose as investors flocked to so-called safe havens. The yield on the 10-year Treasury note, which moves opposite to price, dropped to 2.45% from 2.53% Wednesday. Gold prices rose 1.5% to 1,319 an ounce.

Airline stocks fell on the crash news: American Airlines Group was down 4% to $41.70, Delta Air Lines dropped 3.43% to $36.57, United Continental shed 3.5% to $43.35.

A batch of mixed earnings and economic reports also gave investors a reason to pull back. Russian stocks took a hit after the U.S. announced a new round of sanctions.

Government reports showed a mixed picture for the economy. While the number of people seeking U.S. unemployment benefits fell last week, home construction fell in June to the slowest pace in nine months, a setback to hopes that housing will boost economic growth.

In corporate news, Microsoft got a boost as shares of the tech giant jumped 1% to $44.53 after the company said it was cutting up to 18,000 jobs over the next year.

European stock markets were lower and losses accelerated at the end of the trading session after news of the plane crash. Britain's FTSE 100 fell 0.7% to 6738.32 and the CAC-40 in France slipped 1.2% to 4316.12. Germany's DAX dropped 1.1% to 9753.88.